RE Crash prediction for 2020

Buying & Selling Real Estate

RE Crash prediction for 2020

Cambridge, MA · Member since 2017 · 268 posts · 247 votes

I read that rents are down at least 3% in the hot markets of SF, NYC and Boston? Any landlord in these areas care to comment? If so, how does that affect the decisions to buy rental properties in these metros as the tents could go Yes down further whilst the prices are skyrocketing out of control!!?? Is a crash in the investment market in these areas inevitable? Looks like right now almost every rental investment in Cambridge MA is going to bleed money on a rental cash flow basis. Sample figures. 2 br 1 bath listing for 550 k selling at 570k. Monthly expense with just mortgage tax and fees are running at 2.7 to 3k and the rents have softened to 2.3k. Now if you add vacancy and maintenance to this equation, it looks like such an "investment" in Cambridge is going to bleed 5 to 6 k a year on a cash flow basis. Of course, the potential for appreciation is 4% easily a year or even 10% in these areas but again the numbers show a market that is not rooted in reality. Crash prediction is as follows: More apartments staying vacant (seattle times article and npr podcast on nyc yesterday) Projects are permitted and planned years in advance so even as commercial multi family of 50+ are crashing, they are still building Ok n next 2 years smaller devlopers and property managers to go under, default, get bought out. Short REITs such as avalon that have large exposure to markets such as SF Seattle and NYC where rents went up so high to drive people to purchase but developers kept permitting Note analysis does not apply to sfh and non top 10 metro.

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Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

8y

Yes, cyclical markets go through...well, cycles. The active BP members in these cyclical markets (1) buy well (2) add value (3) use long term debt (4) maintain reasonable LTVs (5) buy in good locations with high demand (6) hold very long term and (7) have reserves. There is no sense in discussing reckless investment into hot cyclical markets without these safeguards...those investors are not on BP trying to learn how to prudently invest.

These BP market correction posts have been going on for years.

See this reply in the discussion

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Christopher Winkler
Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
8y
Originally posted by @Vinay H.:

Originally posted by @Christopher Winkler:
so true @Jay Hinrichs, in pockets of higher end homes in Dallas, its actually transitioned to a sellers market with over 7-8 months of inventory, vs other areas selling like hot cakes...
In the attached report of the subdivision called Prestonwood, in the last year, sales have been cut in half, and listings have tripled. Supply has gone from less than a month to 3 month, trending toward that buyers market.
@christopherwinkler - I think you want to say that high end Dallas has transitioned to buyer's market if there is 7-8 months inventory
As for the above report, your argument seem compelling when you say #of listing has tripled and median price down but
sample size is only 7 to 21 listings, so not so sure. Median listing price is slightly down, but DOM is actually down, so it means the market is in flux.
To confirm , you want to see rise in DOM, rise in inventory but fall in median price
I just used that as an example of the Fannie Mae data you can get right off the MLS to see what your subdivision or city is doing. Its not the subdivision we reviewed in class, let me see if I can find it, as its larger and its in the 7-8 month DOM range.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Jerry Starr:

https://www.realtor.com/news/real-estate-news/u-s-rental-rates-flatten-major-cities-supply-floods-market/
U cant have a million plus foreclosures that were mainly bought by investors and put into rental service.. developers building new apartments and not start to create a over supply issue.. that's just basic math.. so really depends on population and job growth in a given msa to see where rents go or stabilize or shrink.
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Keith C.
Lender · Central Florida Markets · Member since 2017 · 137 posts · 135 votes
8y
I think the RE crash is imminent as Trump has practically closed our borders . No more illegals needing housing :-)
That said ,,, perhaps Trump was pushing so hard for the Steel tariffs since his family has accumulated a s__t load of properties in Pittsburgh ,, Steel capital USA , again just kidding .. but ........
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Chris Purcell
Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
8y
Originally posted by @Dennis M.:

No one can know ,it is all speculation . Of coarse eventually there will be a “ correction” and The best thing to do is preparation to mitigate loss .dont be too over leveraged and be sure to have reserves . Continue to invest and if and when the market falls then you will be in a good position and have some great opportunities to score discounted real estate at bargain prices from people who didn’t prepare . All great investors have used recession or corrections to their advantage . Warren Buffett became the wealthiest stock holder in the country by following These strategies
What’s your definition of over leveraged
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Alex J.
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
8y
i dont know "when" if 2020 is right or not but i do personally think that these mega plex luxury buildings are going to feel some serious pain
the problem is that theres still so much capital floating around trying to find yield that even if they take a big haircut on price or large vacancy ... there will still be appetite for the risk
one thing that could put a big change in the market and probably not talked about as much is the Millennials will stop wanting to live in a box and will start wanting to move into a house.... suburbs that have been basically looked down upon will find itself going thru a renaissance
we are already seeing suburbs starting to get things like trendy coffee shops, art centers, etc to make them more geared toward millennials ... this will continue and i think the "city living" in metros that are not nyc sf will see an influx to places
i know what you are thinking "ok Alex sure... but what will be the catalyst will be for this change in behavior?"
millennials are just starting to have kids and are going to get to an age where they care about their kids schools etc and it will be far too costly in the city to sustain.
so you read it here, mark it down, we are going to see a shift
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Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
8y
@Alex J. makes a great point. I moved from a very densely populated area in Los Angeles to Ventura County because my son reached about 6 months old and I was tired of being packed in like a sardine. My long commute for work is totally worth it for me because when I get home I highly value the open space and slower pace. I know many people around here with kids have made similar transitions.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Alex J.:

i dont know "when" if 2020 is right or not but i do personally think that these mega plex luxury buildings are going to feel some serious pain
the problem is that theres still so much capital floating around trying to find yield that even if they take a big haircut on price or large vacancy ... there will still be appetite for the risk
one thing that could put a big change in the market and probably not talked about as much is the Millennials will stop wanting to live in a box and will start wanting to move into a house.... suburbs that have been basically looked down upon will find itself going thru a renaissance
we are already seeing suburbs starting to get things like trendy coffee shops, art centers, etc to make them more geared toward millennials ... this will continue and i think the "city living" in metros that are not nyc sf will see an influx to places
i know what you are thinking "ok Alex sure... but what will be the catalyst will be for this change in behavior?"
millennials are just starting to have kids and are going to get to an age where they care about their kids schools etc and it will be far too costly in the city to sustain.
so you read it here, mark it down, we are going to see a shift
ya the idea that Millennials are going to be lifelong renters in my mind wont come to pass.. they will go through their cycles like we all did what was cool today wont work with the kiddos tomorrow.
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Jason LeePro Member
Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes
8y
You're looking at historically low cash flow/high appreciation areas and predicting low cash flow.
Where are you getting -3% from? Manhattan median rent is up YOY Q2 0.6%, ppsf is up 2.3%, number of leases is up 5.2%, days on market is down -34.1%. Vacancy rate in May was 1.85%.
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Vinay H.
OP
Cambridge, MA · Member since 2017 · 268 posts · 247 votes
8y
More news from Wall Street JOurnal today
Wall Street is betting that more well-off Americans will want to be renters.
Financiers who loaded up on homes after the housing bust for pennies on the dollar are buying yet more—despite home prices in many markets being at all-time highs.
Their wager: High prices, higher mortgage rates and skimpy inventory are making homeownership harder. Well-to-do families who might have bought a single-family home in another era are willing to rent a house now, especially if it means access to a good school system.
The number of homes purchased by major investors in 2017 was at least 29,000, up 60% from the previous year, estimates Amherst Capital Management LLC, a real-estate investment firm that made nearly 5,000 of those purchases.
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Vinay H.
OP
Cambridge, MA · Member since 2017 · 268 posts · 247 votes
8y
This year, investors have raised billions of dollars from bond buyers, pension funds and even wealthy Chinese individuals to purchase more homes. They have been particularly aggressive buyers in places like Atlanta, Phoenix, and other metro areas with good schools and faster-growing economies.
Cash to acquire and renovate homes has become so abundant lately that some rental investors can’t spend it fast enough. Without enough homes to buy, some investors are now building their own in popular residential markets like Miami and Nashville, Tenn.—upending a traditional pattern of Americans buying starter homes and moving up
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Vinay H.
OP
Cambridge, MA · Member since 2017 · 268 posts · 247 votes
8y
Toronto’s Tricon Capital Group Inc. said that $750 million of the roughly $2 billion it plans to spend will be committed in equal portions by its California home-rental unit, a U.S. pension and a sovereign-wealth fund. The rest will be borrowed.
Invitation Homes , the industry’s 83,000-home heavyweight created by the combination of Messrs. Schwarzman’s and Sternlicht’s rental ventures, last month sold the largest ever rent-backed bond. The houses that Invitation borrowed $1.3 billion against were valued at 26% more than when they were used as collateral in earlier bond deals, according to Kroll Bond Rating Agency.
American Homes 4 Rent , the country’s second largest single-family rental owner, has been adding houses with proceeds from $500 million of unsecured debt the Agoura Hills, Calif. company sold in January. That was the sector’s first such deal.
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Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
8y
@Vinay H. American homes for rent just bought 2 houses in my subdivision. I couldn't believe how much they paid. They are running on razor thin margins.
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Kevin PolitePro Member
Investor · Decatur Atlanta, GA · Member since 2011 · 610 posts · 232 votes
8y
@Luka Milicevic same in Atlanta. They are flush with cash, and my guess it can’t just sit there even though buying at and over market value would seem to be just as bad. The numbers are not anywhere near were they were years ago, but then there isn’t as much inventory.
I miss the days when you could go to MLS, close your eyes, and point and chances were you had a good deal.
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Vinay H.
OP
Cambridge, MA · Member since 2017 · 268 posts · 247 votes
8y
Originally posted by @Jason Lee:

You're looking at historically low cash flow/high appreciation areas and predicting low cash flow.
Where are you getting -3% from? Manhattan median rent is up YOY Q2 0.6%, ppsf is up 2.3%, number of leases is up 5.2%, days on market is down -34.1%. Vacancy rate in May was 1.85%.
Bloomberg
About 5,630 newly built apartments will be listed for rent in Manhattan this year, according to data compiled by brokerage Citi Habitats. That’s on top of the 4,270 units that were introduced in 2017.
DURING JUNE, THE AVERAGE RENTAL PRICE IN MANHATTAN INCREASED BY 1.15%, FROM $3,944.35 TO $3,989.64. THE AVERAGE RENTAL PRICE FOR A NON-DOORMAN STUDIO DECREASED BY 0.3%, FROM $2,547 TO $2,541. THE AVERAGE RENTAL PRICE FOR A NON-DOORMAN ONE-BEDROOM INCREASED BY 2.2%, FROM $3,264 TO $3,335. THE AVERAGE RENTAL PRICE FOR A NON-DOORMAN TWO-BEDROOM INCREASED BY 1.4%, FROM $4,194 TO $4,254. THE AVERAGE RENTAL PRICE FOR A DOORMAN STUDIO DECREASED BY 1.5%, FROM $3,132 TO $3,085. THE AVERAGE PRICE FOR A DOORMAN ONE-BEDROOM INCREASED BY 0.9%, FROM $4,253 TO $4,292. THE AVERAGE PRICE FOR A DOORMAN TWO-BEDROOM INCREASED BY 0.7%, FROM $6,024 TO $6,066. DURING JUNE, NON-DOORMAN UNITS REPRESENTED 50.8% OF THE RENTAL MARKET, WHILE DOORMAN UNITS COMPRISED THE REMAINING 49.2%.

YEAR-OVER-YEAR, NON-DOORMAN AND DOORMAN STUDIOS RENTAL PRICE ARE DOWN 0.91% AND 0.40%, RESPECTIVELY. NON-DOORMAN ONE-BEDROOM RENTAL PRICES ARE DOWN 0.21%, WHILE DOORMAN ONE- BEDROOM RENTAL PRICES ARE UP 2.09%. NON-DOORMAN AND DOORMAN TWO-BEDROOM RENTAL PRICES ARE DOWN 0.99% AND 1.28% FROM THIS TIME LAST YEAR. OVERALL, RENTAL PRICES IN MANHATTAN ARE UP 0.11% YEAR-OVER-YEAR.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Vinay H. I’ve read two articles recently that rising rates aren’t affecting Home demand and that millenials are now also buying more homes increasing demand. If that continues we could have years left on the housing cycle. I think it’s more likely we experience an economic recession then we do housing pricing drop. I don’t think the two are necessarily correlated depending how bad the recession would be. I mean we even had a “correction” (10 percent drop) in the stock market in February and no one even noticed that. My houses still continue to rise in price. Rent gets paid. Etc
1 Reply
Frank Boet
Miami, FL · Member since 2015 · 84 posts · 69 votes
8y
Originally posted by @Keith C.:

I think the RE crash is imminent as Trump has practically closed our borders . No more illegals needing housing :-)
That said ,,, perhaps Trump was pushing so hard for the Steel tariffs since his family has accumulated a s__t load of properties in Pittsburgh ,, Steel capital USA , again just kidding .. but ........
Can you imagine our economy if we would not had aborted over 50 million fellow Americans? We would not need illegals for cheap labor or to fill rentals.
1 Reply
Andre Crabb
Investor · Tampa, FL · Member since 2017 · 205 posts · 92 votes
8y
So what would be a good real estate strategy to adopt during this supposed impending recession?
...just wait for a low point then buy buy buy?
1 Reply
Frank Boet
Miami, FL · Member since 2015 · 84 posts · 69 votes
8y
Originally posted by @Andre Crabb:

So what would be a good real estate strategy to adopt during this supposed impending recession?
...just wait for a low point then buy buy buy?
I like to look at home improvement and home builder stocks for a sign. So far Home Depot, Lowes, Floor and Decor, Lumber Liquidators are holding up strong. Home builders have pulled back to support levels and I expect a big bounce in the next month. I think the end of the year and next year are going to be strong for real estate. As long as the government gets out of the way and let the free markets work, we will be ok. If the government decides that everyone has to own a home, and it is not going to happen under Trump, then we'll have subprime mortgage 2.0.
2 Reply
Alisa Gonzalez
Rental Property Investor · Oakhurst, CA · Member since 2018 · 7 posts · 2 votes
8y
I'm also worried about a recession but if it happens I'm going to be ready to buy more properties if the prices drop.
My leander has suggested to me to wait another year to see what the market looks like from now.
0 Reply
Bryan Devitt
Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
8y
With the big corps owning so many SFR and running thin margins, what happens when there is a recession? What would the eviction rate have to be before they went under and had to liquidate, flooding the market, driving purchase and rental prices down further and creating a snowball effect?
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